Q2 2019 Earnings Call
Sort of Investor Relations you May go ahead.
Thank you operator.
Hello, everyone and welcome to <unk> second quarter 2019 earnings call Fridays earnings release was distributed earlier today and you can find a copy on our website as well as on newswire services.
On the call today, we have Robin Lee, our Chief Executive Officer, Herman Yu, our Chief Financial Officer, and Ocean, Our senior Vice President in charge of Baidu ecosystem group are searching feed business. After our prepared remarks, we will hold a acuity session.
Please note that the discussion today will contain forward looking statements made under the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations potential risks and uncertainties include but are not limited to those outlined in our public filings with the FCC, including our annual report on form 20-F.
Why do you does not undertake any obligation to update any forward looking statement, except as required under applicable law.
Earnings Press release, and this call include discussions of certain unaudited non-GAAP financial measures, we've made minor adjustments to our non-GAAP measures and retroactive [laughter] for comparison purposes.
Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at <unk> Dot Baidu Dot com.
As a reminder, this conference is recorded in addition, a webcast of this conference call will be available on the <unk> IR website.
I'll turn the call over to our CEO Robin.
Hello, everybody and thank you for joining our call today.
I do a second quarter revenues reached 26 point sweet feeling about our guidance midpoint of 25.8.
Which can be attributed to by the poor performing better than our original expectation.
I do is Q2 revenues rose, 9% sequentially and Baidu word revenues rose 12%.
In spite of the impact from industry specific policy.
Self directed health care initiative and lower medical enrollment.
Even with the significant influx so asking mentally into the market. We are seeing an upward trend for biofuels revenue.
<unk>.
Our monetization foundation is strengthening the strong traffic growth such as Baidu you.
Search queries and feed time spend and strong gross all the content and services and by doing so.
That's more mobile ecosystem expands we are able to better understand user behavior.
Lets users navigating the landing pages on Baidu was about.
Over time, the deepening user inside will allow us to further improve baidu user experience and conversion for marketing customers.
On today's call I will share with you about them in our search and feed bean and highlight the progress that we have made our highpin.
In early July we held our annual developer conference I do create in Beijing, which drew approximately 7000 developers and partners from around the world and what's concurrently broadcasted from the Internet.
We released up I do bring worsened 0.5 0.0.
Which includes industrial application of <unk> technology.
I didn't bring the common engine that powers all Harbin.
From search and feed to do it all as Apollo <unk> <unk> and <unk>.
Developers can access the AI capabilities, all fiber brings who baidu <unk> open platform.
Which saw a developer a calm reaching 1.3 million in June .
Up 37% in the first half of this year.
Enabling a large developer community is important in a world of AI computing, that's our <unk>.
The baidu cloud ecosystem and capabilities.
And I do create we are.
We also expanded our strategic alliance.
Top industry players, including GB awful, Oh, Holly and Uh Huh.
That's being our operational review.
Our mobile ecosystem.
In June and Rich do you I do continue to see robust growth, reaching 188 million up 27% year over year contributed by the synergy generated.
When searches combined with.
Certain feed provided by due to strong traffic Angie.
Baidu search is an indispensable mean by which people buying more objective and reliable information at our feet is powered by Baidu I talk with them.
Formulated with Baidu on matched it intends to even use their insight.
Our relentless focus on swinson, baidu mobile ecosystem by enabling U. speed and short video searchable through by John Hong Kong.
And information and service this phone Inc. third party apps surgical through Baidu Smartmoney program.
It's driving more usage scenarios whereby.
In June .
User time spent feed gross 30, 733% year over year and search queries grew over 20% year over year.
In addition to Baidu up total time spent our feed and short video apps together real robust to be up 67% year over year in June .
I do it's the Premier go to destination in China to find knowledge base to content and long tail information.
To supplement information of third party sites, we have spent years developing an extensive knowledge base to content ecosystem.
Such as by doing so, Colombia, Baidu post bar and by doing those to make useful sought after knowledge readily accessible.
As we focus on strengthening Baidu mobile ecosystem Chinese users are becoming more dependent on baidu for knowledge content.
For example in June the time spent per user on Baidu, no impact Oh, 55% sequentially.
Daily video views, Oh, Baidu encyclopedia, well, 80% year over year.
And membership in services revenue for Baidu, one cool.
Rose, 61% year over year.
If I do the mobile ecosystem, it's drawing news feed and short video content creator tool by John Hall, a comp.
We saw a publisher account, reaching 2.2 million in June up 83% year over year.
Developers are also making their services and information available through Baidu Smart metering program. We saw M.A. you accelerated to 217 million in June up 49% sequentially and the number of smart many programs increased more than six fold in the last three months.
[noise] Baidu Smarmy program, all first our youth us reach our content and services selection and provides traffic to app developers without requiring users to download their apps.
This native App like model improve user experience and will ultimately improve AD conversion and expand the monetization potential of Baidu marketing services platform.
[noise] Baidu smart, meaning problem is tracking well known apps such as we've all made one and JD as well as services.
Lower frequency usage.
The latter.
For example in the Shanghai Auto show held every two years in China.
This past April the event hosted created a mini program on Baidu, and we talked and leveraged to other online sites to promote their event.
In one more time, the Shanghai Auto show attracted this 3 million users to its Baidu Smarmy program, which offered indoor event navigation ticket purchase.
Electronic then huh.
And then I do want to Shanghai Auto shows largest third party channel four tickets Phil.
[noise], whereas the other many programs allow users to search for the title of so many prong run by do Smart metering program among our users to search the massive content within those many problems.
To locate the most relevant information and services.
Similarly, our top one capabilities, which we simply satisfied a 51% of the queries.
Allow users to search the massive content on the internet and satisfy users' intent with Baidu first recommendation.
From the developer point of view Baidu Smartninety program health service provider attract higher quality user.
That's fine <unk> intense focus the user base.
[noise] consistent with Baidu search and feed.
Philosophy, we offer an open ecosystem that in Britain and promote a wide array of marubeni program developer, which provide more options to our users.
For example, long form video out.
Who have joined Baidu smarmy problem in crude you cool I see PPTV and China Mobile me video as well as traditional media such as Guangdong, that's like TV.
I do managed to page is another area that we are strengthening our mobile content ecosystem and it's one of the options by which we are enabling industry specific merchants to more effectively reach and engage with you Sir.
And you all.
HTML five sites industry specific content.
Industry specific merchant.
Can provide their information on Baidu managed to page, which is open and freely accessible by other traffic sources.
Think the merchandise content resides on Baidu.
We are better equipped to ensure greater reliability and trustworthy need only information all for signs of merchant.
Structured data for health care industry is a form of managed page.
In March we required our health care marketing services customers to switch over from the or H five page to Baidu managed to page four the lending pages on their mobile app.
And in July we extended the requirement to health care P.C.
Baidu managed page for the health care industry allows us to monitor the health care providers information and communication with users, while enabling our mesh page <unk> warm too can you do to continuously add new functionality for example, like Chad and call features it's the health care provider incremental color I'd to protect user information and consumer protection program <unk>, how did consumer comfort.
We are seeing significant improvement in user, giving mismanaged page and search queries on health care are growing faster than before.
The increasing traffic improvement in health care content quality and functionality are generating meaningful lift.
In customer lead for health care providers and managed page.
Well, our self directed the health care initiative House drive to town, our recent revenue growth and optic wise to make age that much more difficult to implement in the current macro environment. That's the lower quality health care providers are going elsewhere, we believe improving user experience better management, all health care information and lead conversion for our health care customers, well generate greater value for Baidu overtime.
Aside from health care, we are adopting managed to page four home services, such as moving companies and home repair and in July we began to offer attorneys, which has a collective body has recommended online presence.
And and an easy way to promote their businesses English cart format in Baidu search results.
From the car search result, users can access and attorneys educational background legal legal credentials and legal cases handled as well as social features such as you sort of commentaries and breathing.
Manish page gave us the opportunity to be industry specific solutions to empower SM <unk> and allow them to better leverage web traffic and engage with users without having to maintain and I T Department and keep pace with internet infrastructure and technology.
That's a nice can simply wrong I've been using binder with managed page and we will continue to add tools services and features to baidu platform overtime to improve their user engagement and lead conversion.
Extending managed page into new industries should further expand if I do see revenue growth opportunity.
Looking forward, we are excited about M. EG, some hockey the position and money leasing opportunities this traffic growing robustly.
Our mobile.
Content ecosystem spending and different monetization plan of doing the work.
Including the recent launch of Baidu CRM in July , especially when we step up.
When we step out all the weak macro environment.
Moving to do we're aware in the second quarter were all at once this discipline continue to gain momentum through the use of outside with leading technologies in beach natural language processing and search.
During last installed base the surpassed the 400 million up 4.5 fold year over year and most the voice queries, so path to 3.6 billion.
Up 7.5 fold year over year in June .
Northwest first party smart devices.
Is experiencing strong sales momentum.
Market research firm panelists and strategy analytics rent to buy.
So shall do Smart Creek are number one in shipment in China for the first quarter, which is quite an incredible shipments considering baidu lounge to shelter with smart devices, only last year and compared to our peers, who have online distribution and hardware management strategic advantages.
So do smart display.
Its average selling price off approximately 50 U.S. dollar per unit is becoming a sweet spot for us as we penetrate not only first and second tier cities, but also lower tier cities in China.
Becoming an important in computing device for affordable Internet connectivity.
Average time spent all plus smart display past reached about two hours a day and sales volume of smart sticker in China is forecasted to reach over 35 million units this year.
Similar to this expected decline in smartphone.
Unit sales in China, making AI powered smart speakers and indispensable Internet channel for content and service providers, especially with mobile Internet user and time spent in the growing slowing in China.
The rifle Smartycard seems to mirror the rifle marquee smartphones, a decade ago when smartphone took over feature phone with their fan on iOS and Android App stores.
The slipped a this shift was spurred by the change in input modality and the superior experience on mobile apps.
Far field conversational AI, if making it easier for users to interact with the smart speakers shall do stands out from the competition misleading speech recognition and natural language processing capabilities.
For example, recently added the full duplex continued conversation feature enables continuous dialogue with you all do smart devices without weak words, well shall do intelligently distinguishes between wants to quit directed at shall do burst the dialogues directed at humor.
In July we announced the divestment off by doing cool and energy efficient <unk> chipset to power won't interaction in homes and autos.
To further improve sell dues conversational AI capabilities, while driving down unit Ecomm economics.
We are gradually seeing time spent on skills. So pass and time spent on music and videos on smart speakers.
This is quite exciting with the number of skills and do a deal store doubling sequentially to over 2400 and door or developer community growing to about 33000.
Seven car models were recently released.
You are less power to infotainment and 30 car models are in the pipeline.
Scheduled to be released this dual role as creating stock.
Turning to Apollo we are excited that Apollo will continue to be the leading autonomous driving solution in China with over 150, leading OEM tier one supplier key component and other partners.
In June Apollo's test feet, all over 300 vehicles accumulated more than 2 million tested kilometers across 13 city.
As of July Baidu has received almost Uh huh Oh, the two kind of for autonomous driving pilots' licenses granted in China, and Baidu became the only company in China to receive T. Four licenses the heightened level of autonomous driving test to license issued by Beijing Municipal Commissioner transport.
Which for me autonomous vehicles to operate in complex driving conditions, including urban go tunnel schools own and other scenario.
Also in July 1st Automotive works I know the commercial production off level four autonomy passenger vehicle.
To support a polo powered robot taxi pilot program, which is scheduled to be deployed in chunks Shaw the capital city off when I'm, probably along Baidu suite solutions later this year.
Turning to Baidu cloud, we continue to see momentum all our cloud been mis revenues, reaching RMB 1.6 billion Inc. second quarter up 92% year over year.
I do cloud leverage is AI capabilities off I do bring to enable enterprise is a better way to do business.
For example by new cloud worked with a hardware manufacturer to equally the <unk> capabilities into their screening solution. That's how smartphone component OEM automated the quality assurance process, achieving faster through crude while reducing overhead.
Color.
By the way I powered hardware and software integrated solution can take a snapshot off a finished or smartphone component from 18 and goes some continuously and determining whether the component satisfy the designated in Q a criteria all the OEM customer.
Oh like Humana screening by <unk> power to a screening allow.
Oh, yes customer and to access the data Oh screening resolved for an added comfort quality complying.
We are excited about the opportunities assigned to a computer vision capabilities to help Baidu cloud enterprise customer.
<unk> sectors like consumer electronics medical auto to improve the urban.
Turning to I T. I see continue to see solid subscriber growth with membership reaching $101.5 million in June that's up 50% year over year, which provide a strong foundation for I T to offer a lot faster original entertainment content.
Long form long form video content from I.T., enrich baidu search and feed offering and improve my do user experience.
With that let me turn the call over to Herman to go through our financial highlights.
[laughter].
Thanks Robin.
Hello, everyone welcome to by the second quarter 2019 call.
All monetary amounts that will be discussing our news.
And then maybe unless stated otherwise.
Let's now turn to buy <unk> second quarter 2019 financial highlights.
Total revenues reached 26.3 billion.
6% year over year, excluding spinoff revenues.
9% quarter over quarter.
Revenue for him, but I do core was nice conclude right go ahead.
8% year over year, excluding spinoff revenue.
12% quarter over quarter.
Let me give you more color on by the core revenues.
I do marketing services revenue is well diversified with Oh, well industry sectors made up there by the core revenues.
Oh, good flow sectors saw year over year sales decline, including healthcare online games financial services and auto logistics.
Excluding these poor performing sectors by before revenues would have grown in the mid teens year over year in the second quarter.
Although the increase in AD inventory in the market has impacted overall growth rate of our marketing services. It's fair to say that bigger part of our revenue slowdown can be attributed to.
Self directed healthcare initiative, and the softening macro economic conditions.
Additionally, revenue derived from Baidu is union partners contributed to a 3% drag by this quarter year over year revenue growth, which is in sync with our goal to offer my profit on tech revenues versus bidding for incremental revenue and negative margins.
Total marketing services customers in the second quarter was approximately 330000 down 4% year over year and up 5% quarter over quarter.
Please note that this customer number excludes more customers and other calculation policy adjustments that we have made internally such as excluding customers with minimal daily spend.
Our new AI businesses continue to see flat growth.
I'm sorry.
Our business has continued to see fast growth, particularly by the crowd, which generated 1.6 billion revenue.
In Q2 up 92% year over year actually revenue reached 7.1 billion up 15% year over year membership revenue continued to see strong growth up 38% year over year, while I achieve after this was down 16% year over year, mainly due to slowing macro grail content launches is slower than expected recovery.
Advertising.
Turning to cost of sales.
Excluding stock compensation.
That's what ACA immigration cost of sales was 15.9 billion up 33% year over year content, Ben with it other cost of revenues increased to support by Bruce rapid growth greater video consumption and <unk> businesses, including bandwidth integration expenses provided well cost of goods sold relate to shall do smart speakers.
Tac increased 27% year over year as a result has cracked revenue share expansion into off like connected screen and other areas.
SGN expenses.
Stock compensation were 4.7 billion.
The present year over year.
Primary due to the increase in channel and promotional marketing, mainly booked by blue family of apps.
On a sequential basis as Jimmy expenses were down 14% as we scaled back our marketing spending that do not meet our stringent ROI criteria.
[laughter] hampered the sequential growth for out, including how kind short video and trimming lash studio.
We plan to continue to manage our marketing dollars with a strong disciplined ROI approach.
R&D expenses, excluding stock compensation were 3.7 billion up 13% year over year, primarily due to increased personnel related expenses.
And up 5% on a sequential basis.
non-GAAP operating income was 2 billion in non-GAAP operating margin was 7% compared to 2% last quarter.
non-GAAP operating income for Baidu core was 3.5 go in and be worth 508 million us dollars.
So 55% year over year, and 65% quarter over quarter.
On a non-GAAP basis total expenditure for Baidu core.
Were approximately 700 million.
Increased sequentially lessens the buildings that we had at the beginning of the year.
Since our last earnings call. We have to review our businesses go operational efficiencies have made and have made significant progress implementing spending discipline.
While making investments in future revenue growth in our three year plan.
non-GAAP operating margin for by the quarter was 18% in the second quarter compared to 12% last quarter.
We could buy due course incremental revenue growth would have higher margin.
non-GAAP operating margin to rise above 20% in the third quarter.
At the Internet platform, the big part of our prices or cost structure is there such as approximately 2000 scientists and engineers provide dues.
Well I had a large server and network or the infrastructure equipment.
Good.
Well the growth of our revenues will likely bring about higher margins.
Total other income was 1.2 billion, which included equity method income of 429 compared to equity office 360 million last quarter.
Income tax was 416 million in effective tax rate was 28% compared to 18% in Q2 last year.
Primarily due to the lower pretax income generated from bison, four and two I imagine not being able to recognize tax benefit from his work in the current period.
non-GAAP net income attributed to Baidu was 3.6 billion and non-GAAP net margin was 14%.
non-GAAP net income attributable to core was 4.7 billion or $690 million down, 46% year over year and up 160% quarter over quarter.
non-GAAP net margin for Baidu core was 24% compared to 10% last quarter.
[noise] adjusted EBITDA.
Well go ahead.
5 million you at all.
Adjusted EBITDA margin was 13%.
Adjusted EBITDA for Baidu quarter was 4.8 going than we were 694 million U.S. dollar adjusted EBITDA margin for by the poor reached 24% in the second quarter compared to 19% last quarter.
As of June 2019, cash and short term investments.
137.3 billion.
Or.
22 at U.S. dollars, excluding I achieve cash and short term investments were part of the core was 120.9 billion renminbi or.
$17.6 billion.
Free cash flow was 5.6 billion in free cash flow provided for one night, though every Monday was 710 million us dollars Hello, Barbie or was approximately 29900.
Turning to third quarter guidance.
We expect total revenues between 26.9 billion and 28.5 billion representing.
A decrease of 5% to an increase of 1% year over year.
Or a decrease of 1% to 5% increases.
Greetings spinoff revenues of one.
Third quarter 2018.
And then ultimately.
Oh, 2% to 8% on a quarter over quarter basis.
Excluding spinoff revenues our guidance assumes by good quote.
[noise] negative 3% to harvest that you're you're in between 2% to 9% quarter over quarter.
These forecasts are current and preliminary view and are subject to change.
Before I turn the call over to the operator, let me summarize by do second quarter.
We have made solid progress with our surgeon food business.
The growth remains robust with Baidu app use with double digit growth in their searches and continued robust growth the highest there.
These expenses significantly upgraded the content services providers offering native app like experience by boost mobile customers, our emphasis on improving search and the monetization is in progress.
We witnessed double digit sequential revenue growth in the second quarter expect further sequential growth into the third quarter.
Our focus to diversify away from her traffic and growth search revenues through search and Pete.
It's proven to be a dominant search model it out services allow us to gain more user insight across that domain knowledge content and services and continuously improve our user engagement.
I do you know marketing services customers.
We are making.
This is the cloud is smart transportation, which will be critical revenue drivers as we look out warranted.
On the content management side, we will be diligent are reining in.
Vintages with good ROI implementation.
While balancing the need for near term and long term revenue growth.
Alright, she is weathering the challenging matches our strong membership.
The diversification of its revenue stream.
Operator with that.
Two question.
The question and answer session of this conference call.
Start in a moment in order to be fair to all callers who wish to ask a question. We will take one question at this time from each caller. If you have more than one question. Please request to join the question can you again. After your first question is you mean address.
Your first question comes from the line of Gregory Zhao from Barclays. You May ask your question.
Hi, My first question.
Taking my question I have for you if we exclude items. So we can see by doing after January I know some of the content cost growth has some substantial snow down during the quarter I suppose if I repeat contract drilling investment during the Chinese new year around Q1, I'm. Just wondering if you can do your marketing and promotional strategy for your per Doctor portfolio like a short to redo and also we are.
The mobile.
Baidu App and also the content costs are trending draft off to hear thank you.
Thanks, Craig for the question as I as we mentioned on the prepared remarks, our SGN a mailing of marketing expenses are very ROI driven so when we are sitting there.
Ah channel costs and other marketing programs were looking at the lifetime value that we can get from us.
So when there is good and we think that we can generate more revenues compared to the quarter will.
That will send more money because we're transitioning from attack model to work in that services model attack, we get revenue in the quarter that would expand.
In the channel costs and marketing programs in that services, which were expanding expense in that one quarter and we might be deriving revenue from the user minimum quarters. After that there is a lag, but even with that but we are very disciplined in calculated or wise. So we see or it's been more through spending or getting more in Q1, when we see higher ROI with the current macro conditions and some of the issues that we talked about in the prepared remarks the ROI.
Come down as a result.
We've been very diligent between you know the marketing cost that has the low ROI and we'll be looking at that continues to be very closely as we move forward for the remainder of the year.
With regard to a content costs I think it's been.
Growing.
On a year over year basis, but recognize the baidu for the content cost is not that significant for example in the second half.
In the second quarter were talking about maybe a half ago and really.
Per quarter. So so although the increase is significant other percentage basis, but you know the total cost with my house.
So when were increasing even about increasing the pace of very small I don't think its a similar to our overall expenditures.
Thank you.
[laughter]. Your next question comes from the line of Alicia Yapp from Citigroup. Your line is open.
Hi, Thank you good morning, Robin Herman Sharen. Thanks for taking my questions. My question is related to the many programs. So all weve, increasing applications and services tapping into by too many programs Eagle system and I think management also commented you know some positive developments on the progress and traction earlier. So how should we think about the attractions of these mini program to translate into demonetization upside overtime, and then any update on the upcoming grow all off the CRM initiative. Thank you.
Simple answer okay. Thanks for your question actually let's just say in a mini program has oh I see that much it attention from the developers we see the benefit.
The small milligrams already like for the users the better smart minute programs offers them reach or content in service selection and therefore developers you know the small mini programs and they use our AI powered at Williams to screen the massive content.
If the small mini programs and a recommended the relevant content and service to the users based on their per active search for information service.
This small mini program already you know how the developers to acquire users any intention to enhance better user experience for the baidu. So on the buy this platform.
So actually as you may already have seen by the smart meter program has a attractive you know some well known apps like vivo made one June as well as the services with lower frequency or usage like the Shanghai Auto show.
So.
So that's not you know we also have our HM customers from different sectors industry sectors. They have twice the smart many programs as their landing page for their campaigns. So we see no pretty significant ROI looked for all those who try to this small mini programs. So actually you know the smart minute programs also offer the our customers into the developers are much more options to engage the users in their service. So with that you know we bought in the ROI will be further improve so that is how well again, we're going to see a meaningful when how many programs is going to help or is to two restaurants in our monetization capabilities excellent.
That's true CRM.
Actually just a start and it because.
We got out of that you know most of our customers they had with the lease generates from.
Baidu platform. So on a combined with the CRM, we have more ways to help the customers to engage with their users better and to explore the lease in a better way to improve the effectiveness and also clearly improved our way. So that's why we are using the CRM to help with the campaigns on our platform first and then the next level, we're going to provide more valuable features to the customers to further explore the you know a utilities if the CRM.
Thank you Tony.
Let me add a point or so.
For the smart many programs I think from a.
Service provider Theres couple of points that are key for them versus you know as a number of smartphones in China cells is declining and we saw that last year. We saw the first half of this year, it's more in the cost more and more to actually leverage our apio.
App stores in order to to have a installation of their apps are the economics as well as much better than appsource. Because afterwards, you have to spend the channel costs and you're not sure if you're going to get to our lives, whereas a mini program because were in the business search. These are natural results to begin search. So wed. Rather then you don't shifting this in directing the traffic over to your your apps you have to first paper channel and secondly, there is usually more steps for example to convert a sale from our many programs to within an app versus if your native.
In EMEA by by there is our platform and could we could directly to that pipe.
On the mini program. So I think first of all.
You're able to see that result, right away.
Users to download the App and secondly, I think.
What though the cases that don't have a explain would help drive up conversion. So obviously with a better conversion marketing customers are usually focus on better conversion, you know looking or weiss with better conversion or you'll have we believe over time more people bidding for it.
The more people developing smart meter programs, so that when they have got their search results you have better conversion I think from a user perspective, you're probably half users over time rely more and more searching with and by the way because if that native app experience directly with the mini programs.
Thank you.
Your next question comes from the line of 10 whole from T.H. capital you May ask your question.
Revpas Herman Sharon a question related to the Bidens efforts income 10 building. So as you are guys aggressively developing seat business and you know you guys also me to build a a very healthy contingent. So in addition to your by John how how contributing a show by recently we saw from the news you acquired some stakes in Ah Jew, who and also I think this the yesterday you up puts money in the fourth quarter. So I wanted that you wouldn't go go okay cool in which way. They help you in the content ecosystem of beauty and also in the going forward. So what's for some other content area you see you need to continue to build on.
And just so is there any other potential content investments are on the horizon. So that's the question.
<unk> <unk> <unk>.
Hi, This is Joe actually let me answer your question that first I'm sure you know content is extremely important for our whole business.
As we already shown using remotes so for the Bijac halt so we see the creditors pump Idaho grow significantly over a year over year, reaching 2.2 million creators are writing.
So that is still not enough for us because that users come to baidu for not only information, but also service. That's why we just discussing how we are managing the.
Smart M&A programs to provide further information and service, which we see significant growth as well in addition to both by Downhaul and.
Come on clinical programs, we are so.
Working with.
Even wider collaborators to provide valuable information as we had noted so we invested in June with Badger, who.
Providing you know.
Additional information complimentary information to Baidu judo and there we see our users interests argument that search queries.
They have strong interest in.
Whose content so thats why we invest in those.
And.
So along with that you know we are trenches looking for in a try to look for more and more content, which can better satisfy our users.
Interest so you know in shortening.
To sum up so we're keeping keeping had to keep looking for better content.
And as we know in the continent.
It's really important for the whole one villager today.
So we are developing our own.
To generate content, we are looking for partners to.
And more useful information answers as well.
So we've got here, let me just add a few comments I think our content strategy, it's pretty much to adopt that does the overall user experience to the new mobile ecosystem, meaning that we will mate or or strike partnership for our investment if that deal can help us to improve the user experience.
The content may be available on the open web or on the PC enough by that if we can have a deal that enhances that.
Mobile.
User experience.
With that kind of content, we will do it or if that kind of content is not available on the open lap or not available.
The PC Internet.
Within our partner content.
We will also do so basically that the content strategy is to make.
Thanks, Matt experienced either misstate, the experience et cetera, or make something that was not available to become available to our internet users.
Right. Okay, I would just add one more thing on that and so as Robin just mentioned that we were looking for you know better user experience I say on when we switch by due to downtime by the news to the Smart mini program in our pipeline, we see so given its significant to user 10 spend time gross actually.
So for June now is most of the content.
As presented in the form of the H five but with this deal. So we're going to convert all that through content in by this platform to smart many programs and this will be another. Good example to show how we are going to improve the user experience through the smart meter programs actually.
And just to add Sharon you asked which areas will be interesting when you look at our content by two as a whole it there's really three categories of content. We're looking at a content that knowledge base indicates two who are in case of baidu knows that would be.
But we're looking at for example, the vast amount of services and information tower.
In apps today, and making that basically having a native app experience. So services is very important and clearly we're looking at industry verticals, where right now it gets pregnant on internet. If we can concentrated within baidu is a content platform. So that they have better conversion. So that they can build a user engagement and have better user experiences. So three areas knowledge services and industries of vertical information.
It's very helpful. Thank you. Thank you guys.
Your next question comes from the line of Eddie Leung from Bank of America Merrill Lynch You May ask your question.
Hi, good morning, guys.
Could you share with us.
On the recent news of potential new entrants.
So are you going to see any different this time.
And then just a quick follow up are not herman's commands on some of the advertising industry.
Given the recent weakness in some of the verticals I could you remind us what the top for example, three all five verticals we have right now thanks.
Sorry go on sale per questionnaire incremental.
Okay on for the nuclear Arsenal is remarkable thing, it's not new actually and so on.
The search business is pretty profitable up from this as we are known so and we have players are trying to enter into this business you know.
In the past to decrease so actually searches with search has a very high Oh engine, a barrier actually because user come to a search engine with a very specific information need so we need to locate the information out of 100 million hungry as the balance of the web pages to get any information.
Located so this is quite different from other businesslike.
Feed because.
For feed we usually just show general interest and then the engines to match the users generate interest.
So it's not easy to tell right or wrong, but for search is a user euro has a very strict demands and a strict criteria to a charge in the performance. So that say you know we see unfortunately I know we are you know actually the only one a successful twin engine model with both search and feed so for in the world So and in our experience. We see it is relatively easy to switch from search to feed because we can generate you know.
Generate generalize the users' interest out there, Chris but not the other way. So on you know we were not surprised to see new players in this market and we.
We have been we have seen this monies and so on.
That's right in and were happy to see new players.
And.
With that.
Idaho ends its not many programs we are.
Strengthening our mobile ecosystem and we see we are providing better user experience to the users.
Of that at this time.
Yeah, and Eddie with regards to our topic.
You know health care as you guys know.
And that that.
In addition to.
The other industries.
Our.
Smaller so.
Two thirds.
Any industries.
All that's in.
He sent by requires our revenue and those would include a industry sector.
Find games education.
Thank you.
[laughter].
Your next question comes from the line of James.
That's from Mizuho Securities you May ask your question.
Great. Thanks for taking my questions here are two primary <unk> first and maybe Robin you can talk about you sound pretty.
Excited about the cross cycle on your operating system than voice search going to next year.
And maybe you can help us understand the road map into the commercial world Mac going to.
2020, and maybe help us understand what verticals that you weren't able to monetize on text search now able monetize and a voice and also what verticals that you could optimize potentially.
With voice search Oh vertex search and also second question on Herman on for Q. Our revenue growth is that going to be similar to your guidance in three Q and also in operating expenses will figure stepping up about 400 million change and total expenses in Threeq you should we expect very similar trends and to four Qs one thanks.
Yes, and dual role as it's a it's a whole new ecosystem it fully leverage as I do.
Investment.
In search and in AI technologies for that.
After many many years and we are offering a better and better user experience.
It does.
Lower the barrier to entry significantly.
I talked about it during the prepared remarks that we are entering Lord I seriously.
A more affordable device system and we're also.
Able to accessing people.
At a very young age or very old age.
Because it's just it's a lot easier to use and that we see.
Strong momentum.
Continue to to going to the current for them.
Maybe.
The the coming years.
Talking about the potential been thought of it because if I'm right right now in.
At an early stage, we have not really.
Sickness directly tied to manheim.
The.
Product, but that.
We see huge potential in many in France for example in education, It's a very natural for kids to learn a thing for this.
Kind of a new devices.
Games, it can offer a very different experience than mobile games because.
For mobile you have to hold your handset, but for for the smart display you.
Yes.
Your hand, the freight and we have a camera and captured user some.
Behavior.
Intelligently.
So.
Many many possible build models, including the ongoing putting the subscription model for all kinds of content and services.
And this is a whole new era for.
For enhancement for education and for.
The smart life for many many people who may not spend a lot of time with mobile home.
And James the question you asked about.
Revenue and expenses, we typically do not give guidance out two quarters.
And with the current macro situation is hard to predict what's going to happen.
Yeah in two quarters.
But I wouldn't.
Don't use a reference for example, if you look at.
Last year Q3 to Q4.
He has very minimal sequential growth.
So you know if the economy or you know.
Keeps pace and so forth.
We will probably have similar trends, but I cant commit at this point given that we don't have as much visibility incremental situation.
And so when we set our expenditures for the second half we're cognizant of the current revenue situation and the economic conditions. So a former expenditure perspective in terms of total expenditure for Baidu core causes cells.
Plus operating expenses or we're going to try to keep pace with our total.
Expenses expenditures for Q2, so we should not see to a significant increase from the second quarter level and.
Mine too that this would adjust for example, you know our revenue.
For example, improved significantly and so forth. So that's our current thinking right now.
Okay.
All right. Thank you.
Your next question comes from the line of Natalie Wu from CAC, Sir you May ask your question.
Hi, good morning, Thanks for taking my questions.
I think your question regarding loss and other problems.
So we understand the nature of the financial impacts in the term and longer term.
And what kind of incentives.
You cannot provide attached to about a plus two up from.
So if I may.
I still curious about that I'm, not meaning to them.
Just wondering what what kind of success are the most the freight containers as well as not many programs in Michigan.
So absent that change I'll add the project on the on your platform outdoors, they couldn't smartmoney programs or is that.
And I would appreciate it if management can elaborate more on the difference you have upsets among different success for that means a program with that thank you.
Hi, Natalie onto a financial impact of CRM. We are currently you are trying to do and integrated it has to do with our our Oh hi.
In custom they already spent a lot of money to try to acquire a potential customer for their products and services and are we.
Help them to better manage this process and.
Achieve a better conversion.
Oh, we think longer term that I am offering well be able to provide independent product value and we will be able to charge a significant enough on <unk> money for this.
[laughter] King based we we would like to help our advertisers and customers to two thinking a more holistic way they acquired topic from the Baidu channel and we help them to better manage the topic or patio to better manage the users and the that help them to improve the overall efficiency off that the whole marketing funnel that that's Uh huh.
The difference between our CRM and you know independent CRM products.
Though can you talk about okay for the for the sure.
Well, the smart minute programs or I mean.
Our two museums.
So actually the user as I, we already under Senate race for the users who come cheap I do not only clean commissions also for cities. So with smart meter programs, we provide both information and service to the users. So that's saying we're seeing a gross for some I mean, if it went into quite a few different verticals.
Including the tribal you know rearrested education, and all that stuff. So, let's say for a be brought in the self insured. So in general we think they provide information to users and for this type of a small mini programs, we see each of them highs like.
A few millions of users daily active users actually in Baidu platform.
Very small.
Okay.
It is a smart mic or when it's very.
Valuable to developers with lumpy.
Nations service.
As you can.
You really looking for some lung inflammation and service.
New users because the user come here correct.
We'll let you know I don't for locate some information so.
Type of.
Goodness, you're also good you know clears for the smart meter programs.
The question.
Okay.
Christy.
For customers adopting smart many programs.
That's there.
Landing page. So we see examples from tribal like Citrix right from a real estate from education like.
Sure so right so.
All of those customers, we do see there performance budget, Cummins or getting better through different traffics. So this or just some examples to see and we are expanding the coverage I know as the lending produce through a small mini programs. So on down the road, maybe you can see more good examples into shim with emissions.
Thanks.
Okay.
Your next question.
Your next question comes from the line of gene using from New Street Research you May ask your question.
[noise].
Mr. Jean you May ask your question.
[noise].
Hey, sorry about that.
For myself on mute apologies again HM.
Just on the many programs again, just wanted to just kind of go back into kind of the health care vertical just kind of where we are on kind of bringing everyone up to speed and at the same time. You know you were also talking about a you know bring moving more of the other verticals into the mini program and just kind of just on the traction of that that's kind of the my first question and my second question is.
Well, we'll start there what's up there and then I'll follow up with the second question. Thanks.
Okay. Thanks for the question again.
It's actually a as we mentioned in the remarks me so.
Smart many programs and to manage it.
Pages or two for me you know Joo forums, we are using for the landing pages, so for them Uh huh.
Marketing customers, they do not have to spend to be use among many programs that they can use in the light of Reagan and men's pages I for the health care vertical industry. So as Randy has already mentioned or the money and marketing customers. They have switched from each five to managed pages. So in this way we can not only you know guarantee the quality of the content and information correcting. These and you know for the landing page. We can also help with the marketing customers to engage in a better way with their users.
So you can trade smart milligrams as another way or a relatively heavy way with even stronger yeah.
Capabilities and to strengthen the engagement.
And so that's why for all the services, which you need or you know are relatively complicated a interactions and to trueview users in.
Need and so on so for those type of the business small mini programs or a better way to do this down the road you know to guarantee the quality of the landing page, though to the correctness of the information we will.
Strongly recommended the marketing customers to use either manage pages or small mini program.
In the Meanwhile, since we see.
No most of the cases, if not own a using small mini programs or managed to pages the customers already see the lift in their own life. So we better you know they are going to switch embedding itself.
I think thats, what I can offer no yeah, okay great.
For it.
Yeah in terms of sector. In addition to health care. We are also mentioned the moving companies home repair attorneys. They are all using managed pay that Dave.
Got got it if I could just have one just follow up on I remember just the last time you guys had a health care cleanup in like in 2015, there was a little bit of a drop off in terms of the number of advertisers not being able to qualify you said in this time around that a lot of the I guess the market of have moved over have you seen any kind of the overall tam or actually the number of advertisers be able to drop off this time as well are you seeing that or some of these ever advertisers are not able to qualify and then is that anything material.
Jamie. Your question is are we seeing the number of healthcare marketing services customers drop off.
Yes, because that's really being not able to qualify or not able to get to make the transition because I think that happened a little bit in 2015 correct.
Yeah, we actually so when you look at when you look at the number of.
Thats one of the health care sectors.
We see them as started to drop off.
At the beginning of the year and we've seen that consistently into Q2 and as we mentioned earlier.
Because because once they use the manage pages, we're able to screen the content using our AI.
We're installing for example, a call like call capabilities and messaging capabilities. So we use our AI into also screen to communication with users to make sure that there you know.
Providing content information that thats more secure.
And more trustworthy so as a result of that it's it's a filtering system for the lower quality.
Health care providers. So those are probably going to go elsewhere, probably going to drive revenue for other people for us, we're basically 20 away the lower quality customers in health care.
Got it great. Thanks.
Your next question comes from the line of B or small by <unk> from Goldman Sachs. You May ask your question.
Thank you for the additional color on traffic growth rates in the second quarter I Wonder if you could just take us through what you think are the drivers of the acceleration and that number from the first quarter and could we expect that 2% potentially continue at least based on the July and August data that you've seen currently.
And my second question is I know you talked about the medical vertical quite a bit but.
Can I ask what the number would have been of the growth rate would have been for the core if you excluded the medical vertical and also on medical could you talk about what percentage of.
Of traffic is on your landing pages and what the initial feedback is thank you.
So the topic questions.
So actually I think we had touched this question.
That's traditionally sold.
We are now.
The user acquisition efficiency is guiding hi, inherit actually so I was hoping just to make it. So we are spending.
Marketing budgets.
Lamar in a smart way to consider more about our lives so and that's why nowadays when we look at the new users we acquired so their lifetime spend on Baidu is growing.
Pretty pretty significantly I assume.
So on and also the cost of the content quality and also the service provided by smart many programs. We can see it even speaker you know engagement between the users in our service and all that together that's why we can't explain that traffic is growing relatively.
Significant.
But for sure you know summaries horserace.
The time for traffic in general.
So that's another reason we see that gross.
But in general I bet in RIS searched Whistler, you know that.
Better content as we just mentioned this brand by Dollhouse My milligrams and also the strong collaboration with the right partners and to provide better content and service. So we can see the engagements between users and Tiphone is being chosen actually.
Okay with regards to that fits for the questions on the numbers a few verticals that that helped us grow sequentially.
Or like ER.
Retail and e-commerce , or like a education or travel or did very well too.
And then service related industries. So these are some of the highlights for the second quarter and then with regards to healthcare revenues were seeing double digit declines in health care revenues. So when you look at the second quarter as a percentage of total Baidu core revenues were talking about less than one seven of our revenue. So that has a decline pretty significantly when you look at it from last year, but I think for the long haul is better for us because we're now having a better way to to ensure better quality of the content. Both on looking at the landing page and also a monetary into kind of comic communication between the merchants with a users.
We are now approaching the end of the conference call. Thank you for your participation in today's conference you May now disconnect. Good day.
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